How to Profit Off of Liquidity Mining Using Obyte

Do you want to get additional income with cryptocurrencies? Then liquidity mining could be for you. This technique has become popular among crypto investors of numerous platforms to earn passive income. Users can periodically receive monetary rewards by providing liquidity (crypto funds) to a Decentralized Finance (DeFi) market.

Our main DEX in Obyte, Oswap.io, already has incentives for those who add liquidity to the exchanging pools. Likewise, the Prophet prediction market lets anyone make their bets or earn from fees. We will show you here how to maximize your passive earnings with Obyte. Let’s go!

What is Liquidity Mining?

Liquidity mining refers to the process of providing funds (liquidity) to different DeFi products (e.g., DEX or predictions markets) in exchange for a portion of regular users’ fees or rewards. Those rewards may come from the exchange's native token (in DEXs' cases) or other cryptoassets.

Some investors choose liquidity mining over other methods of earning passive income in crypto because it can provide a somewhat predictable return. However, the earnings from liquidity mining vary by platform. They’re mostly displayed as Annual Percentage Yield (APY), easily observable on all dashboards, no matter the platform.

For example, suppose a specific pool in a DEX offers a liquidity mining APY of 13% for LPs. In that case, a user who provides $10,000 in liquidity tokens could earn around $3.5 per day and $1,300 per year, depending on the number of active traders paying fees at the time. So, it’s important to note that profits can fluctuate based on market conditions and trading volume.

As you can see, liquidity mining benefits Liquidity Providers (LP). It also benefits the DeFi products. DEXs require liquidity to support trading activities and facilitate transactions between token pairs. Prediction markets, on the other hand, require liquidity to improve the trading conditions for bettors and encourage more trading.

Usually, the liquidity in DEXs is provided in pairs. For instance, USDC-ETH or O-GBYTE-ETH. The liquidity provider (LP) should deposit two assets in the assigned pool, often in equal proportion. After that, the funds will be used by other traders, and the LPs can receive transaction fees and token emissions for the provided capital. 

Liquidity Mining in Obyte

Oswap.io and OSWAP Token

As we mentioned above, Oswap.io is our main DEX. Anyone can provide liquidity and earn from trading fees here. Besides, there are additional rewards for some pools. We currently have two main ways of getting those extra rewards: a 7-day locking of funds in an Autonomous Agent (AA) and the OSWAP emissions through farming. 

Fees + Locking

On this DEX, users can find exchange pairs (pools) like GBYTE-USDC, GBYTE-ETH, GBYTE-WBTC, or OUSD-USDC. Participating in Liquidity Mining is quite easy. The tokens to deposit must be compatible with the Obyte network. Thus, they can be native Obyte tokens (such as GBYTE or bonded stablecoins) or wrapped tokens from other chains (such as ETH, USDC, or WBTC).

You can use only native Obyte assets or import coins like ETH, USDC, or WBTC from the Ethereum blockchain using the Counterstake Bridge. Next, you need to provide liquidity on Oswap.io (deposit), and receive liquidity provider (LP) tokens in return. You can deposit both tokens or, in some cases, just one of the two tokens of the pair.  

The path to follow on the website [Oswap.io] is Pools > Add Liquidity. Then, you select the tokens involved and the amount for each token. The APY (percentage earned from fees) for each pool is available at first sight. Currently, the APYs on Oswap.io vary from 0% to 13.3%, depending on the pool. In exchange for providing liquidity, you receive LP tokens to your wallet. 

From this moment, you start earning from trading fees, and your earnings will be reflected in the value of your LP tokens – they’ll hold more underlying tokens of the pair, and you can get them when you take your liquidity back. That’s assuming the price between tokens doesn’t change a lot. If it does change substantially, there’s a risk that your loss from the changed prices (so called impermanent loss — compared with just holding the underlying tokens) exceeds the earnings from fees. 

To compensate for this risk and create additional incentives for liquidity provision, it’s common in DeFi space to pay additional rewards to LPs. On Oswap, there are currently two options.

1. Weekly rewards from Obyte

Every 7 days, 100 GBYTEs (around $1,300) are distributed among the LPs who locked their LP tokens on an AA designed for that purpose. The 100 GBYTE reward is divided among LPs in proportion to their locked value. For example, the last distribution offered 100 GBYTEs in rewards to 21 LPs, but some of them gained more than others, since they had more locked funds. 

The funds are locked for 7 days, and adding more LP tokens to the AA would extend the lock for another 7 days. Only LP tokens locked by the distribution date will be counted for rewards. 

This old way may be discontinued soon, though. The new OSWAP Token has arrived to fill that role. 

2. OSWAP Token

OSWAP is the first-ever DEX token issued on a bonding curve. It was launched on April 6, 2023, after a successful presale round. It incentivizes liquidity provision in some Oswap pools. Oswap.io liquidity providers can stake their LP tokens here and get a share of OSWAP emissions. 

You can buy and sell OSWAP tokens on its official website, using GBYTEs or any other cryptocurrency supported by the Counterstake Bridge. However, to profit from liquidity provision, you only need to have the required tokens (or the pool tokens, if you have already provided liquidity to Oswap). You need to visit the “Farming” section, choose the pool, and Add Liquidity through Oswap.io.

At the time of writing, the pools offering the highest rewards are O-OUSD-USDC (+214,500), O-OSWAP-USDC (+71,225%), and O-GBYTE-OSWAP (+11,400%). Since the farming (liquidity mining) of this token is barely starting, those values are constantly changing. As an example, the total OSWAP emissions to all pools were around $1,115 today. That’s distributed among all LPs, depending on their contributions. 

Prophet

Prophet is a bonding-curve-based prediction markets platform on Obyte. Besides betting on future events, you can also provide liquidity to the bettors and earn rewards from their fees. To become an LP on Prophet, you need to buy the tokens representing all the available options (Yes/No/Draw). 

The fees are added to the market when any of its tokens are bought or sold. This increases the total amount that will be divided among the winners after the event's outcome becomes known. Thus, every token holder is also a liquidity provider. Their tokens appreciate thanks to trading fees accrued after the tokens were purchased. And their capital improves the conditions for subsequent participants.

To minimize risks and remove the dependence on the outcome, liquidity providers would purchase all tokens in proportions that reflect the probabilities of the respective outcomes. This way, they get a piece of the trading fees every time, regardless of the results. To further reduce the risks of losses, providing liquidity to multiple markets is a good idea. 

Just like on DEXs, the APY is also available on every market (bet) in Prophet. To add liquidity, pick an open market (with “Trading” status). Finished markets (tagged as “Claiming Profits” or “Waiting for result”) won’t accept new LPs. The option to add liquidity is below the market data.

You’ll choose the amount to provide, and — if you are the first to provide liquidity to this market —  in which proportions. It’s important to check the odds to deposit good proportions. After that, you’ll just wait for the results and take the fees paid by bettors.

Mind the financial risks

Liquidity mining, like any other financial activity, involves certain risks that must be considered before participating. The risk of impermanent loss occurs when the relative token price locked in a pool changes, compared to the initial one. If the liquidity provider decides to withdraw at this point, the loss becomes permanent.

Being a victim of a crypto scam is another risk associated with liquidity mining. This occurs when the developers of a centralized protocol shut down the project abruptly and flee with the investors' money. That’s why you need to do your own research (DYOR) about the project and trust, preferably, in long-established platforms with well-known teams. 

Besides, technical threats include vulnerabilities in the code, lack of due diligence by the team, or failures in smart contracts. Fortunately, most of these risks associated with liquidity mining are mitigated on Obyte. The transparency of the Oscript language makes Dapps less prone to errors. 

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